Question

Suppose Dina gets a sales bonus at her place of work that gives her an extra $800 of disposable income. She chooses to spend $600 and save the remaining $200. From this, you can tell that Dina's marginal propensity to consume (MPC) is , and her marginal propensity to save (MPS) is . Mathematically, it must always be true that: Disposable Income = Therefore, it must also be true that: 1 =

Answer 1

Answer:

MPC = 0.75

MPS = 0.25

Disposable income = amount spent on consumption + amount saved

Marginal Propensity to Consume + Marginal Propensity to Save = 1

Explanation:

Marginal propensity to consume is the proportion of disposable income that is spent on consumption

Marginal propensity to consume = amount consumed / disposable income

Marginal propensity to save is the proportion of disposable income that is saved

Marginal propensity to save = amount saved / disposable income

MPC + MPS = 1

Disposable income = amount spent on consumption + amount saved

MPC = 600 / 800 = 0.75

MPS = 200 / 800 = 0.25